FTC: “Nonprofit” crammed $70M in bogus charges on phone bills

Husband, wife, and son accused of getting rich by defrauding phone customers.

A shady outfit billed phone customers for more than $70 million in unauthorized charges and then transferred much of the revenue to a "purported nonprofit," the Federal Trade Commission alleged in a lawsuit announced today.

"Hundreds of consumers complained that charges from $9.95 to $24.95 per month appeared out of the blue on their phone bills without their authorization," the FTC said. "The FTC alleged that defendants told phone companies and third-party 'billing aggregators' that the consumers had authorized the charges by filling out forms on the Internet. Since January 2008, according to the complaint, the defendants have billed consumers for more than $70 million."

It's a family-run affair. The nonprofit and the companies that allegedly orchestrated the charges are run by "Steven Sann, his wife Terry, son Nathan, and accountant Robert Braach" of Montana, an Associated Press report notes. The lawsuit in US District Court in Montana (PDF) was filed against those four people as well as nine Nevada-based companies with names like American eVoice, Emerica Media, Foneright, and Voice Mail Professionals.

The complaint says cramming charges showed up on landline phone bills as "voice mail services, electronic fax services, or other noncall-related services." The charges were passed on to customers of Verizon, AT&T, and Frontier through the aforementioned billing aggregators, which had business relationships with the phone providers.

Good luck getting a refund

"The charges billed on behalf of Defendants usually appear on one of the last pages of a consumer’s multi-page telephone bill," the FTC lawsuit said. Even when consumers noticed the charges and complained, the defendants allegedly dragged their feet in issuing refunds.

"Defendants will often issue credits for more than three months of charges only when the [phone carriers] require them to, or when consumers are persistent in their demands or complain to the Better Business Bureau or state or federal regulators," the FTC wrote. "In many cases, it can take several months and repeated inquiries before the consumer gets a full refund."

Out of the $70 million worth of charges, the defendants allegedly collected $26 million in net revenue from the billing aggregators "after subtracting returns, fees for excessive credits and refunds, service fees, and other expenses."

An unspecified amount of the revenue was transferred to Bibliologic, the "purported nonprofit," which is controlled by Steven Sann, the FTC said. "The purported nonprofit organization has no right to the funds and must disgorge them to the FTC," the commission said.

Bibliologic was incorporated in 2009 and has been funded by the "ill-gotten assets derived from the unlawful acts and practices alleged in this Complaint," the FTC said. The money was allegedly never used for charity. "Bibliologic retains funds solely for the benefit of Defendants Steven V. Sann and Robert M. Braach and, at their direction, has distributed funds to, among others, Defendant Emerica Media and lawyers retained by Sann to represent him in personal matters unrelated to any charitable purpose," the lawsuit states.

The FTC asked the court to halt the cramming operation and freeze its assets. The defendants are charged with violating the Federal Trade Commission act by "unfairly billing consumers for services they did not authorize; and deceptively representing that consumers were obligated to pay for the services."

Although the FTC just announced the lawsuit today, it was filed on January 8. There is both a civil and criminal proceeding. On January 18, the Sanns asked for an "order staying all civil proceedings in this matter pending the resolution of the active, parallel criminal matter against Steven Sann and the corporate Defendants in this case."

Promoted Comments

My cell bill got hit with a few of these over the course of 6 months. The first one I didn't catch till the next month billing cycle. Verizon Wireless was happy to give me a refund for the additional unauthorized charges. At the same time, I requested that all 3rd party billing be turned off. Valid use or not, I didn't want anything charging costs to my phone bill, I'd rather pay it through the bank or credit card.

For the next 4 months, every bill had an additional $9.99 charge on it that I didn't authorize. Each time I called up customer service and they promptly removed the charge. I very much doubt this particular scheme got any money from me.

The strange thing is many of my coworkers and casual friends whom I told what happened said they had also seen strange charges on their phone bills. They didn't do anything about them since they assumed it was some additional charge from the cell carrier themselves. *sigh*

I don't think most people want to, or need to subscribe to these third party services.

There should be a law requiring opt-in (at least one time opt-in) from phone subscribers before such fees can be added.

Additionally, phone companies should be required to issue a refund if the subscriber files for a dispute. i.e. it should be the responsibility of the third party service to prove that the phone customer really subscribed to the service - kind of like how credit card payments work.

41 Reader Comments

Happens all the time... 3rd party billing is simply evil... Once your an authorized 3rd party billing entity you can tack charges on anyones bill without any oversite. Only if people see the charge and complain.

We had all our corporate phones hit with a 29.95/month fee from an internet fax company that did 3rd party billing with at&t. At&t removed the charges, but said there was nothing we could do on our end to keep this from happening as all they need is a valid number (they do not even need the name on the account).

I don't think most people want to, or need to subscribe to these third party services.

There should be a law requiring opt-in (at least one time opt-in) from phone subscribers before such fees can be added.

Additionally, phone companies should be required to issue a refund if the subscriber files for a dispute. i.e. it should be the responsibility of the third party service to prove that the phone customer really subscribed to the service - kind of like how credit card payments work.

I'm sure AT&T and all the other carriers take a hefty cut of everything that they third party bill. Really, the FTC should be targeting the carriers in addition since they are clearly profiting from the scams as well. Honestly, are there any legitimate uses of this? Or is this something which is used exclusively for fraud? If the latter I see no reason not to ban the practice.

This is very to fix and to allow 3rd Parties to do billing without a technical tool. It's called Escrow. Carrier nor the 3rd Party would get released the money until escrow could authorize the charges from customer. It's not like they don't have a telephone number....and automatic releases would not happen. If the 3rd party couldn't get their money then "services" would stop...and if the customer wanted/needed such service they would notice calling and releasing (and even setting up automatic release to just this 3rd party in x amount). It's not hard...but ATT and the like love their cut...This wasn't about security ever or heck even services ...it was about making more money for ATT and this is the idea they came up with.

My cell bill got hit with a few of these over the course of 6 months. The first one I didn't catch till the next month billing cycle. Verizon Wireless was happy to give me a refund for the additional unauthorized charges. At the same time, I requested that all 3rd party billing be turned off. Valid use or not, I didn't want anything charging costs to my phone bill, I'd rather pay it through the bank or credit card.

For the next 4 months, every bill had an additional $9.99 charge on it that I didn't authorize. Each time I called up customer service and they promptly removed the charge. I very much doubt this particular scheme got any money from me.

The strange thing is many of my coworkers and casual friends whom I told what happened said they had also seen strange charges on their phone bills. They didn't do anything about them since they assumed it was some additional charge from the cell carrier themselves. *sigh*

I'm sure AT&T and all the other carriers take a hefty cut of everything that they third party bill. Really, the FTC should be targeting the carriers in addition since they are clearly profiting from the scams as well. Honestly, are there any legitimate uses of this? Or is this something which is used exclusively for fraud? If the latter I see no reason not to ban the practice.

This, 100%. When the carriers are benefiting from cramming, they have no incentive to stop. Especially when these FTC investigations never target them. Why stop the cramming when you get free money and someone else takes the heat from the Fed?

The FTC needs to lay out guidelines on the reputation of companies that are allowed to push 3rd party billing through the carriers. If a company drops below a reputation threshold (too many complaints), the carrier will be fined if they continue to allow the 3rd party billing. I would expect cramming to largely disappear, as the companies pulling these scams couldn't survive more than a couple months at most before the carriers cut them off.

I'm sure AT&T and all the other carriers take a hefty cut of everything that they third party bill. Really, the FTC should be targeting the carriers in addition since they are clearly profiting from the scams as well. Honestly, are there any legitimate uses of this? Or is this something which is used exclusively for fraud? If the latter I see no reason not to ban the practice.

The suit alleges violations of the Federal Trade Commission Act, which of course is enforced by the FTC.

The FTC doesn't have jurisdiction over carriers when it comes to third-party billing. The carriers are subject to FCC jurisdiction. Conversely, the FCC has little jurisdiction, if any, over the third-party billers themselves, unless they are biling for communications services.

The FCC allows carriers to include third-party products and services on the end-user's phone bills under its "Truth-in-Billing" rules. Third-party billing has been abused for fraudulent purposes but it's hard to show that carriers are culpable. For example: drug dealers use "throwaway" cell phones to arrange and complete their drug deals.

Should wireless carriers be held liable for such illegal uses of their network?

Pay by cell phone is a pretty popular way to make payments outside the US, and yes there are definitely legitimate uses. Unfortunately, the illegitimate ones are far more numerous and problematic from what I've seen. One would think that carriers could stop it with something as simple as a pin for a user, not unlike the ccv credit card companies have. Obviously if you have to provide your phone payment pin to make a transaction, there's going to be a charge - making it much harder for crammers to unwittingly sucker people into these things.

Of course, as others have noted - there isn't any incentive for carriers to do this since it would reduce the free money they're getting. Such as shame, it's a really stupid problem to have.

This is one of the reasons I invested in a MagicJack. In the late 1990's I got slammed. At first the phone company worked with me on the charges. Later on they did not. Haven't had a land line since. As an added side effect I didn't get telemarketing calls until I gave my number to Veteran's Affairs. Since then I have gotten political calls and calls for medical studies. I currently pay a bit more than a dollar a month for phone service plus the cost of internet which at the moment is zero.

I like some others noticed a charge on my AT&T bill and did some research. The name of the billing company popped up in some scam report websites. I called AT&T and they were happy to refund the money, especially after I mentioned the scam reports.

They did offer me the option to turn off third party billing as well. Not sure why this is'nt an opt-in service and not opt-out.

My cell bill got hit with a few of these over the course of 6 months. ... I requested that all 3rd party billing be turned off. ...

For the next 4 months, every bill had an additional $9.99 charge on it that I didn't authorize. Each time I called up customer service and they promptly removed the charge. I very much doubt this particular scheme got any money from me.

This happened on my wife's cell phone too, almost word-for-word, not long after we first got it. At the time, I had very little knowledge of these scams, and assumed that my wife was somehow responsible for clicking on things she didn't understand. (This was her first cell phone, after all.) In retrospect, she probably did nothing at all to attract this nuisance.

As for their having not gotten any money from you... they got interest from their bank off of your $9.99 for some period of time. Keep in mind that we're not talking about just a single transaction or a single "customer" (or rather, victim); we're talking about millions of victims. Scrape the interest off the top of a constantly fluctuating -- but seriously bloated -- account, and you can still make some pretty good money, even if that account returns to zero regularly. That's one reason why "money management" is such a profitable venture.

$70-million cramming? Hell, that's child's play compared to what we'll be seeing when more people use their cell phones to pay for purchases. I'm sure there are hundreds, if not thousands of criminal minds hard at work to see how they can insert themselves into that transaction chain.

Contract phone service providers should be held liable for this fraud. They go to great lengths to make your bill incomprehensible, so that they can raise your rates or tack on fees and pretend it's some new state/federal tax. Not to mention being able to advertise a low price, because $20+ is tacked-on as taxes and their own uncounted "fees". It would be trivial for them to include one or two-line descriptions of charges so people know WTH they are being billed for, and would recognize when something they didn't have or want was being charged to them.

People may look down on pre-paid service, but issues like this would never come up there. You're paying a flat rate for service, either per-month or per-minute, and not even tax is separate. Any other charges showing up are blatantly obvious errors.

I worked for one of the 'legit' (and I use that term loosely, none of them are particularly honest) third party billing companies and there are uses for the service - mostly because you can't place collect call charges on a mobile account or, for example, you roam on CDMA outside your coverage area and your phone fails to register with your home carrier. When you make a call in those cases you will receive a bill from the third party carrier that completed the call on the carrier's behalf - with minimum charges and hugely inflated per minute prices. Sprint's network in particular drops registration when your phone leaves their coverage area.

That being said the vast majority of our 'customers' did not understand how or why they were being billed and we always had a huge number of charge backs each month. Yes, the carriers get a nice cut, they have no incentive to stop it (Sprint and Verizon still get a cut if you make a call while unregistered from their networks). Yes, there are third party settlement companies that could, in theory, block it from happening but they also have no incentive to stop.

Call me cynical but I really have to wonder if these guys would have been allowed to keep right on cramming if they had not tried to run a Hail Mary around the tax system. I remember watching a documentary (can't remember which one) that stated that erroneous fees is a multi-billion dollar industry in the U.S. so it is hard to mobilize the system to act against such a large source of tax revenue.

They should require written paper authorization for all 3rd party charges. the carriers and aggregate billing companies are EQUALLY at fault for allowing these scam charges and there is NO reason for them to stop since they get a percentage of the amount. Why should carriers stop doing something that earns them money?

As others have commented, stories similar to this one are nothing new here. What I don't understand is why there doesn't appear to be any incentive to legislatively solve this problem. Too much tax money being generated by these scams or is it simply apathy on the part of the legislature? I can't possibly imagine that anyone considers this sort of scan to be in any way useful to the consumer surely?

I went through this about 6 months ago. I received a strange text message, about signing up for something like flirting tips. I ignored it, I get spam sometimes. When my next bill came, I noticed it was a few bucks higher. The bill said there was a premium text charge for 7.99.

I went in to the Verizon store near my office, and asked what it was all about. The guy said he wouldn't refund the 8 bucks, and then took my phone and tried to cancel the service by texting some ineffective numbers back to the short code send number, or something. I asked him why it happened in the first place, and he said I probably signed up for something while drunk, or that my wife (which doesn't exist) perhaps signed me up. I left laughing at him because I knew I would learn more reading on the internet in ten minutes than I would talking to that stooge.

The next bill came, and the 7.99 was there again. I went back in. This time I had a different guy. I said look, this should have been prevented. The guy took a look and flat out said this was the most common scam in the cell business. I asked him to explain what the hell it was. Then I told him to cancel any and all premium services that are in effect, pending, or possibly incoming, and to cancel/opt out of any and every single possible service that is not my basic service. He did all of it and I haven't had any problems since.

It's clear the carriers aren't going to protect the consumer, so all consumers need to educate one another on these topics. What is most alarming to me, is that the scammers have found the perfect amount to bill. Tiny dollar amounts, spread across millions of accounts. This ensures that a) the people probably won't even notice such small fluctuations in bills, b) if they do notice its too small to care or fuss and most importantly c) the amount is so low, the Carriers have no incentive to step in. If they chose an amount like 49.99, the protest would be so high the carriers would be forced to step in, but they won't over nickles and dimes, and a nickle times 5 million equals a significant sum of money...

I didn't get refunded the 16 bucks by Verizon, but I didn't care about that, I was mostly willing to take a $16 hit if it meant I become aware of this scam and squash it now before it ever got worse and never let it be capable of existing again.

...What did irritate me though, was I never got a single flirting tip that I paid for, if you're going to fraudulently enter me into a subscription, at least give me the flirting tips

Happens all the time... 3rd party billing is simply evil... Once your an authorized 3rd party billing entity you can tack charges on anyones bill without any oversite. Only if people see the charge and complain.

We had all our corporate phones hit with a 29.95/month fee from an internet fax company that did 3rd party billing with at&t. At&t removed the charges, but said there was nothing we could do on our end to keep this from happening as all they need is a valid number (they do not even need the name on the account).

So stupid....

Make them give it all back. Every cent they ever charged, to every customer.Then lock them up and throw away the key.

$70-million cramming? Hell, that's child's play compared to what we'll be seeing when more people use their cell phones to pay for purchases. I'm sure there are hundreds, if not thousands of criminal minds hard at work to see how they can insert themselves into that transaction chain.

Try to keep up: the people you're talking about are already in the chain. We call them "cell providers."

And no, there really is no reason to even make this opt-in. It serves no useful purpose. And it will continue until the consequences for enabling it exceed the profits the phone companies currently make from it.

Should wireless carriers be held liable for such illegal uses of their network?

Absolutely.

Their spectrum and towers should be eligible for surrender under civil asset forfeiture laws, too, so they have an incentive not to allow this sort of fleecing of their customers through their own billing service.

It would be helpful if someone knew and could explain to me how this ties into 1996's telecommunications act and ma bell deregulation. I understand that telecom companies are making money from this, but I also believed that they (LECs) had little say as to which companies to block and which ones not to block. Of course, this means little in regards to wireless, but I am curious, nonetheless.

They should require written paper authorization for all 3rd party charges. the carriers and aggregate billing companies are EQUALLY at fault for allowing these scam charges and there is NO reason for them to stop since they get a percentage of the amount. Why should carriers stop doing something that earns them money?

Personally, I know that my carrier website has an account management section to it (I'd really like to hope that all carriers do this now, that are not pre-paid services). What I'd like to see is something akin to the whole security/cookies setup for computers. I can specifically enter in what services I want to authorize third-party charges from (if any) as exceptions to my billing. If I do not specifically enter in their company billing information (and I think that the dollar amount agreed upon should also be mandatory for "opting in" on such a charge) in such an exceptions area in my account management, then the carrier should be 100% accountable for all charges put through to my monthly bill as a result.

This, I think, would help accommodate the changing technical landscape to where phones can be linked to credit cards for use of purchases at stores, or even to PayPal accounts so that eBay items or other sites' items could be bought via a smartphone. We'd just have to enter in that party's billing information whenever we configure the service on our phone and we'd be set.

I think that if we force people into that level of interaction with their carriers should they legitimately want third-party billing options, that would help go leaps and bounds as far as education on what is and what is not fraudulent charges to the average cell user. That would also serve double duty in that people who don't want to bother with such configurations for their cell phones would never have to, and every third-party charge that shows up on their bill will automatically be counted fraudulent and the carrier should have to remove it.

My take away from reading this is "why should I not do this?" If they had been smart and taken their millions to Belize there would be nothing anyone could do about it. It is not like the government is going to do anything to stop this happening in the future and the phone companies are making money so they will continue their same old practices, customers be damned. I don't want to be a criminal but this sure makes it tempting.

I had the "voice mail services" bill my landline back in 2009. I noticed the bill was higher than normal, found the charge and found a number to call that I thought was AT&T. (It was in the section with contact information for AT&T so I assumed...) The number actually was for the crammer. They claimed my wife had signed up for the service. Then, when I informed them she had died 3 months before, they insisted someone else in the household had signed up for it and didn't want to remove the charges. I asked for a supervisor and got the same run-around. I tried another number. The answered "AT&T" but I later found out they were the crammer again, and they claimed that they would remove the charges. I then called a number I knew was AT&T and explained the situation to them and was informed that there had been no attempt to have the charges removed, so they removed the charges. They then told me I could have 3rd party billing blocked and I did so. Haven't had any illegitimate charges since. I had thought I had 3rd party billing blocked since I had blocked 3rd party calling (where someone calls and bills to my number.) I had that blocked because a kid house sitting had made 3 long-distance caller on her grandmother's phone and billed them to my phone. It was Bellsouth then, and they told me no confirmation was required but the ability to do that could be blocked. These people deserve to burn in some especially vitriolic part of hell.

Should wireless carriers be held liable for such illegal uses of their network?

Absolutely.

Their spectrum and towers should be eligible for surrender under civil asset forfeiture laws, too, so they have an incentive not to allow this sort of fleecing of their customers through their own billing service.

Reminder: third-party billing isn't illegal.

But drug dealing is, so to protect themselves, you'd be OK with wireless companies monitoring every one of your conversations for hints of illegality?